- Equity Markets Tread Water in First Quarter, Bonds Gain
- Emerging Markets Weather a Volatile Quarter
- Economic Recovery Slower but Still on Track
- Equities Pause but Retain 2013 Gains
- A Tragic "Estate Plan" and a Cautionary Tale
Cold weather and tensions between the U.S. and Russia dominated the headlines during the first quarter, which also saw the handoff of Federal Reserve Board leadership from Ben Bernanke to Janet Yellen, further weakness in emerging markets, and a slight drop in interest rates. After a shaky start, U.S. equities eked out a modest gain, marked by a rotation away from growth stocks toward more value-oriented issues.
Hanging over the flat first-quarter performance of stocks was the question of whether — after last year’s extraordinary advance — the bull market has entered its last innings or, even worse, a “bubble” phase. We do not believe either interpretation is correct. Since the Great Recession the economy has grown 17 of the last 18 quarters, and although that expansion has been slow and fitful, it shows increasing signs of gaining strength and becoming self-sustaining. While the Fed is reducing its monetary stimulus, that is a very different matter than raising rates, something we believe remains well into the future. Corporate profits and balance sheets are strong, and while stock valuations have certainly risen, they are not overly inflated. Meanwhile, the U.S. energy picture is better than at any time in the last 40 years, a development that is fueling an ongoing manufacturing renaissance and corresponding increases in capital spending. Inflation is nowhere in sight. The federal deficit continues to fall. Jobs are being created. Although careful about their spending, consumers are generally optimistic. Yes, geopolitical risk has risen and a correction of some sort is likely in 2014, but the overall trend remains upward.
After five years of gains, investors are right to be on guard against complacency. It is also important, however, not to fight former wars. Current market conditions do not resemble the frothy peaks of 2000 and 2008, and the U.S. economy remains the locomotive of global growth. We are being very selective, but we continue to see opportunities in both the equity and fixed income markets.
This issue provides insights from our team of investment professionals on the outlook for equities, emerging markets, and the economy — along with why we should all keep our estate plans up to date. I am confident you will find it informative.
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